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Service tax liability on concession fee under ppp model

MOHAN AGRAWAL (Practice) (100 Points)

16 December 2011

Dear Friends/Experts

Whether service tax will be charged on the concession fee to be received under PPP model (Public Private Partnership)?

Please suggest giving reference of section/notification, if possible.

(Concession Fee Meaning ::::: under a PPP model, government transfers rights to the private sector to

operate a public service, such as an infrastructure system-based utility. The private sector is often required to

pay a fee to government to acquire this right, which is called concession fee.)

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4 Replies

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 16 December 2011

Your query is on behalf of Government who will rceive the Consession Fee or the Private Sector Organisation paying the Fee to the government?

As no service is involved in respect of Concession Fee paid, no Service Tax Should be charged.

Service tax would be charged by the Private sector Organisation that is providing Service on behalf of the government organisation, provided the service provided is a Taxable service.

Please feed some more details for an specific reply.

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MOHAN AGRAWAL (Practice) (100 Points)
Replied 16 December 2011

Thanks Prabhat.

My query was on behalf of the Government.

As u told that "Service tax would be charged by the Private sector Organisation that is providing Service on behalf of the government organisation, provided the service provided is a Taxable service."

it means u want to say that private player will charge service tax from the users.

But in a Draft concession agreemant of Delhi transport Corporation it was mentioned that "The Concessionaire shall pay service tax (as applicable) over and above the quoted Concession Fee to DTC."

I am enclosing the same DCA for ur reference, plz refer clause no. 6.4.

Attached File : 166484 887415 partiica.pdf downloaded: 261 times

CA Prabhat Gupta (Manager (Indirect Taxes)) (821 Points)
Replied 16 December 2011

Dear Mr. Agarwal,

I went through Article No. 6.4 and other relevant parts of the DCA attached by you. I seems that both the parties are providing services to each other.

DTC is providing a service u/s 65(105)(zzzm) that is, Sale of Space or time for Advertisement. Since consideration for such service is partly discharged by Concessional Fee & partly by installation of LED display by the concessionaire, DTC is charging Service Tax over and above the Concession fee. As far as other taxes and duties are concerned, the agreement clearly makes the concessionaire liable for the same.

Hope this clarifies.

MOHAN AGRAWAL (Practice) (100 Points)
Replied 16 December 2011

ok...

If government is giving land on a lease period of 33 years for development of a commercial building for which authority will charge Upfront fee and Annual concession fee, then in that case what is ur opinion?

in a diffrent case, if government transfer rights to private party for O&M of a assets for which authority charge annual concession fee, what will be your opinion?

Please....